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Timor-Leste: Lower Public Spending Leads to Slower Growth

Reserve assets grow and the outlook for tourism and petroleum remains positive

Dili, March 20, 2018 – After a decade of strong economic activity, growth in Timor-Leste is expected to have fallen sharply in 2017, following a tightening of public spending, according to a new World Bank report released today. The March 2018 Timor-Leste Economic Report also identifies potential for development in offshore petroleum, and the tourism and coffee sectors.

The report—the first in a new twice-yearly series from the World Bank, which aims to provide ongoing analysis of the country’s economy—projects that Timor-Leste’s GDP fell to -1.8 percent in 2017, compared to 5.3 percent the year before. With government expenditure representing about 75 percent of the country’s gross domestic product, a tightening in government spending 2017 has had a significant impact on the country’s economy. Constrained spending is likely to continue through the first half of 2018, the report adds.

“We expect this slowdown to be temporary, reflecting short-term adjustments in spending while the government continues to implement programs to strengthen the economic outlook.” said David Knight, Senior Country Economist for Timor-Leste. “While it is important for the country to gradually reduce its dependence on public spending, it is also important that lower public spending does not adversely impact priority social services.”

The report also highlights that investment returns from the Petroleum Fund have been particularly high, increasing the fund’s balance to US$16.8 billion at end 2017. International air arrivals continued to grow over 2017, suggesting that the international visitor market has held up, while private consumption is expected to have been robust. The recently agreement on a maritime boundary brings new offshore oil and gas development one step closer, which has the potential to bring significant benefits to Timor-Leste.

“The World Bank Group looks forward to working closely with government and the private sector alike to identify the key constraints to accelerate private sector development, create jobs and improve quality of life across Timor-Leste” said Macmillan Anyanwu, Country Representative for Timor-Leste.

The Timor-Leste Economic Report includes an in-depth analysis of areas for reform to reduce poverty and boost shared prosperity, in-line with Timor-Leste’s national development goals. Key priority reform areas include addressing the multi-sectoral challenge of severe malnutrition, improving systems of public service delivery, developing a targeted economic development policy, and putting environmental and fiscal management back on a sustainable path.